Wednesday, October 16, 2019

Billion-Dollar Acquisitions Are Taking The Permian By Storm

Whiting Petroleum is talking acquisition with Abraxas Petroleum
Corp., a Texas-based company with operations in the Permian, unnamed
sources told Reuters.

According
to one of the sources, the mostly likely scenario was for an all-stock
acquisition. According to another, the tie-up would boost Whiting’s
acreage in the Permian and also help it spread its overhead costs over
greater oil production, Reuters noted.

Neither of the companies
confirmed or denied the report, and the Reuters sources said that
reaching a deal is far from guaranteed.

Consolidation among U.S. oil independents has been a topic
of discussion for analysts for a while now, with many of the opinion
that both independents and Big Oil would be willing to exit other shale
plays in the U.S. to focus on the already crowded Permian where
production is rising the fastest.

Earlier this year, Bloomberg reported
that a wave of M&A was coming to the Permian as the larger players
sought to expand their presence there. Indeed, Big Oil majors have been
selling their operations in Europe to focus on the Permian at home. Yet
if the Reuters report is confirmed, it would highlight that it’s not
just Big Oil that is doubling down on the Permian. Independents are
growing bigger, too.

Yesterday, Parsley Energy announced
that it would buy rival Jagged Peak Energy for $1.62 billion in an
all-stock deal. The acquisition would boost Parsley’s Permian acreage.

Shareholders
don’t seem like they are too happy about this consolidation drive.
Reuters reported on Monday that Parsley shares fell by as much as 11
percent following the deal announcement. On the other hand,
consolidations usually cut costs, which should sit well with investors
that have yet to see the higher returns they have been insisting on.

Besides the Permian, Abraxas Petroleum also has assets in the Rocky Mountains and in the Powder River Basin in Wyoming.